Pros and Cons of a Savings Account

Estimated read time: 5 minutes

Save, save, save! That is a common mantra in the world of responsible finances, and one championed by most. Though it seems common knowledge to have both a checking and savings account, sometimes people wonder why. If you are already saving money by building your checking account balance, is a savings account necessary?

This is just one of the questions to be asked about savings accounts. There are many others. What are the pros and cons of a savings account? Are there other types of accounts that are more valuable? These are the advantages and disadvantages of savings accounts the average consumer may not have considered.

Traditional Savings: The Pros

Establishing a way to save money is critical to your financial well-being. From opening a checking account to finding credit cards that help you earn, there are many ways you can increase or manage your savings balance. Your balance, however, may be quite different from others. This depends on a number of factors but is influenced by your perception of what advantages a savings account has to offer. These include:

  1. Easy Access

    Your savings account is a source of money. It is not some locked box that takes forever to access. Account snapshots, management, and transfers can be made online or at your local bank or credit union. What's more is you are also able to use your debit card to access your account at many ATMs. This allows you to withdraw directly from your savings should you have the need.

  2. Backed by FDIC or NCUA

    A savings account protects your money. This is because the banks are protected by FDIC, and credit unions are protected by NCUA. This protects your money from any institutional failures, allowing you to worry less.

  3. Easy to Open

    A traditional savings account is quite easy to open. Whether you have an established checking account or not, opening a savings account is a simple process done at your local bank or credit union. You can often open one online, too.

  4. Minimal fees and Account Balances

    One of the best parts of savings accounts is they allow you to save money! As such there are often free methods of opening account and maintaining a balance. If there are any fees they are often minimal, and many types of savings accounts have extremely low minimum account balances.

Drawbacks of a Traditional Savings Account

With all that said, there are a few disadvantages when it comes to savings accounts. These have much to do with low interest accumulation, limits to particular savings accounts, the accessibility of the account, and whether the account requires a minimum balance.

  1. Interest and Fees

    If you're looking for a way to let your money accrue great interest, a traditional savings account is not the way to go. These accounts often accumulate some form of interest, but they do so at lower rates. Savings accounts through local banks and credit unions most often compound interest monthly or yearly.

  2. Limits Apply

    Since the point of a savings account is to help you save money, there are often limits to how much money you can transfer between accounts or withdraw at a particular time. This isn't something just regulated at the local bank or credit union level, either. There are Federal rules in the United States that place limits on how often you can withdraw and how much. Specifically, you can not make more than 6 transfers or withdrawals from a savings account in any given month.

  3. Temptation to Spend

    Though you should be saving money and setting aside part of your monthly earnings or paychecks into a savings account, there are no barriers to accessing the money within that account. That means there is often a strong temptation to spend the money you have in that account when impulsivity strikes.

  4. Minimum Balance

    To protect themselves and you from overdrafting or not using an account the way it is designed, some financial institutions require you to maintain a minimum balance. This can range from lower amounts in the hundred dollar range to minimums in excess of a couple thousands dollars.

Alternatives to Savings Accounts

Savings accounts are great, but they aren't for everybody. There are other ways you can save money that might have more of the features you're looking for.

Money Market Accounts

A money market fund is often the most popular alternative method to a traditional savings account. Through this type of account you are able to invest your money in a mutual fund that provides for low-risk investments that accrue better interest.

Certificates of Deposit (CDs)

For those really into savings, you will want to explore a certificate of deposit (CD). A CD is meant for long-term savings, and it accrues better interest the longer the deposit is held. You agree to a fixed term and can not access funds until the term is complete.


I-Bonds are somewhat like CDs in that they prevent access to funds until an agreed-upon point of time. They are purchased through the U.S. Treasury, and the interest accrued is based on the rate of inflation. The rate of inflation changes twice per year.


Stocks are a traditional form of investment that provides purchasers shares in a company they choose to invest in. This can be a high-risk, high-reward situation depending on what company you invest in. Should the company you put your money behind perform well, your investment (and savings) will grow. Should the company perform poorly, your investment (and savings) will diminish.

High Yield Checking Accounts

A high yield checking account may provide you even more reason to not open a separate savings account. While there are often minimum balances, transactions, and other stipulations to opening one of these accounts, they often provide a better interest rate than traditional checking and savings accounts.

Money Market Funds

A money market fund is often the most popular alternative method to a traditional savings account. Through this type of account you are able to invest your money in a mutual fund, which provides for low-risk investments that accrue better interest.

Peer-to-Peer Lending

Popularized more in the digital and social media age, peer-to-peer lending allows you to lend money to a number of borrowers you are able to screen beforehand to assess risk and potential. Lending services allow you to pool money with others to provide a loan to borrowers that can be repaid at higher rates.

Roth IRA

A Roth IRA is for those thinking about retirement. The money placed in this account won't be accessible until a later specified age. This is often around 60 years old, if not just slightly earlier. The main benefit is it provides a great source of compounding interest.